Even after shedding almost three-quarters of its value this week, the pummelling of Carillion PLC (LON:CLLN) is set to drag on for a little while yet, so say analysts at JP Morgan.
The bank has downgraded the construction services firm to ‘neutral’ from ‘overweight’ on the back of Monday’s trading update in which its chief executive resigned after warning investors that full-year revenues would be lower than expected.
JP Morgan lowered its profits forecasts for the next three years by around 20% and said it didn’t properly appreciate just how much money was owed to Carillion.
‘Further risk to the downside’
“We see further risk to the downside, even at the current share price,” said analyst Samuel Bland in a note to clients on Thursday morning.
“On reflection, we previously did not adequately appreciate the sharp increase in receivables during 2016 and the high level of receivables vs peers.
“Our analysis suggests a further provision is possible and that current debt facilities may not be sufficient.”
Bland thinks the FTSE 250-listed company could look to raise a significant amount of money – upwards of half a billion – in the near future.
“We struggle to see an elegant way out for Carillion, with our numbers indicating a possible equity raise of £532m (we consider a rights issue) needed to bring FY18 average net debt/EBITDA to 1x.”
Not even a decent takeover target
Unfortunately for any investors taking a punt that Carillion might now be a worthy takeover target, the analyst has some bad news.
“We are not convinced that Carillion would represent a feasible target for a potential acquirer, given the scale of risk and liabilities.”
Bland chopped his price target by more than £2 and now thinks the shares are worth just 64p – although given that they’re currently at 62p, even that could be a bit punchy.
According to City AM, of the 18 hedge funds shorting the stock at the beginning of the week, only two have closed positions with the majority baying for even more blood.
Those institutions have made over £100mln from their short positions this week alone, and until they close those positions, it will likely be difficult for Carillion shares to register any meaningful growth.